There is a financing gap between expensive durable goods such as cars, boats and other titled goods and not titled consumer goods that are still relatively expensive compared to daily consumption items. To a large extent, at least in America, this gap is filled by credit cards. Credit card use has become ubiquitous in American society. Credit card acceptance has become nearly universal in America, and in fact, much of the world over, with even small, independent retailers being forced to accept many credit cards to compete with their larger competitors.
Credit card companies aggressively market credit cards to college students and also at sporting events, shopping centers, and other high density locations in order to get consumer to apply for new credit card accounts. Various incentives including physical collateral (i.e., towels, tee-shirts, souvenirs, etc.) as well as low interest introductory rates and/or balance transfer programs are used to entice customers to apply for credit cards. As a result, excessive credit card debt has become a serious problem causing many Americans to suffer from bad credit, inability to save, living paycheck to paycheck, and in the worst case failing to meet even their fixed costs due to the high interest payments required to service their credit card debt.
Innovations in the credit industry have primarily been aimed at increasing revenues for the credit card companies at the expense of their cardholders, rather than benefiting them or even incentivizing them to be more financially responsible. One current innovation in the credit industry is affiliation cards. These cards have school logos, professional sports team logos, organization logos, and even customer supplied photos printed on them. Thus, the consumer ostensibly enjoys some satisfaction from having a credit card with a graphic image of their choice on it, thereby allowing the consumer another outlet to express their individuality and affiliations. However, other than the look of these affiliation credit cards, they function just as any other revolving debt instrument and thus are no less likely to help the card holder live a more financially responsible lifestyle.
Another innovation in the credit card industry has been stored value cards. Stored value cards are debit cards that are either purchased with a fixed declining balance or have no value initially and receive their value from another source such as the purchaser's checking account or other credit card. Stored value cards are attractive to credit card companies because there is essentially no risk for the issuer because they are prepaid and a certain, significant percentage of them are never used, thereby providing a windfall gain to the issuer. These cards do not provide the consumer with credit at all, but rather a way to access money that they already have. The primary benefit of these cards to the consumer is that they provide a way to carry money that is more secure than cash and accepted at most if not all places that accept credit cards.
Still another innovation in the credit card industry has been reward card programs. Reward card programs typically provide the consumer some sort of rebate based on purchases made with the card. Often these cards are affiliated with a third party such as an airline, hotel, or retailer, or partnership comprising several of these entities. Rewards inure in the form of miles, points, discount credits, etc. Alternatively, the consumer may receive a dollar rewards such as a check, a credit in a college savings account, or a dollar amount to spend in a reward catalog provided by the credit card company. While these type of credit card programs are beneficial to the consumer to the extent that they are receiving a benefit, that is a return of a portion of the transaction and interest fees paid by them and generated by their purchasing activity, they still don't incentivize the consumer to spend money responsibly. To the contrary, these programs may actually induce irresponsible spending behavior because the consumer may feel less concern about spending money with their card because of the benefit they are receiving, regardless of their ability to repay the expenditure.
Thus, there exists a need for a financial instrument and payment processing system that provides consumers with the convenience of universal card acceptance while ameliorating some or all of the above-noted shortcomings of conventional credit systems.